Investment advisers love dog-and-pony shows. They trot out all kinds of statistics, lovely graphics and impressive tables of numbers.
I won’t say it’s meaningless.
I won’t say it’s gobbledygook. I won’t even say it’s gibberish.
That would be rude.
Some of it is interesting, particularly for that tiny portion of the human population with a fetish for numbers instead of the usual things such as well-painted toes.
But there is a better way to deal with the age-old question: “How are my investments doing?”
It’s simple. It’s direct. It is absolutely existential. But it’s down to earth at the same time.
It’s “Show me the money!” a statement best delivered in the 1996 movie Jerry Maguire.
So let’s do it.
In spite of everything there is to fear, which is a whole lot, the reality is that if you ignored every concerned and worried voice or face on television, radio or whatever and invested in simple, low-cost index funds, you have more money today than you had at the beginning of the year.
Most important, you have more money even if you are a retiree and spending some of your nest egg regularly.
Let me show you the money, courtesy of the Austin-based website portfoliovisualizer.com.
Nearly one year. If you had started the year with $100,000 invested in the basic Couch Potato portfolio with the intention of withdrawing at a 4% rate that you would adjust for inflation, your year would have been a non-event, a ho-hum.
By Nov. 24, you would have withdrawn $3,021, and your remaining balance would be $108,290. At its worst point, the end of March, your balance would have fallen to $89,673. That’s worrisome but not a cause for trauma.
And getting those results wasn’t difficult. You opened an investment account at a place like Vanguard, Schwab or Fidelity. Then you placed two buy orders: one for $50,000 of the Vanguard Total Stock Market Index Exchange Traded Fund, the other for $50,000 of the Vanguard Total Bond Market Index Exchange Traded Fund. You’d pay no commissions, and the annual expenses for operating the ETFs is nearly a trace element, a mere 0.03%.
Was it a painless, worry-free year? Hardly. But if you enjoyed your daily life and watched TV less, it wasn’t so bad.
You can do this.
Nearly three years. You’d have enjoyed a similar experience if you had invested nearly three years ago, in January 2018. On Nov. 24 of this year, your investment was worth $116,458 and had paid out that $1,000 a quarter, adjusted for inflation, like clockwork. The value of your investment had slipped below the original $100,000 only briefly, having hit $93,377 at the end of your first year in December 2018.
Nearly five years. After nearly five years, your original investment would be worth $123,417. You would have collected $4,067 in distributions in 2016, rising to $4,330 by 2019, with more coming in 2020. Your worst moments would have been immediately after you started investing. The lowest account value ever was at the end of your first month, January 2016. That’s when your account dipped to $97,739.
Nearly 10 years. Going back nearly a decade, your original investment would today be worth $161,657. Your worst month would have been in 2011, your starting year, when your account dropped to $95,390 at the end of September. Your annual withdrawals would have risen from $4,114 in 2011 to $4,672 in 2019, heading for $4,721 for the current year.
What burdens would you have shouldered during all this time? Not much. Once a year, you would have needed to “rebalance” the two investments, selling enough of one to make it equal in value to the other.
Is even that too much to do?
Fine. There’s also a one-stop-shopping alternative: Buy an index mutual fund that rebalances for you. Do that, and the only thing you’ll need to do is cash the quarterly check.
It’s not available as an ETF. But Vanguard Balanced Index mutual fund (ticker: VBIAX for lower expense Admiral shares at 0.07% a year) has a 60/40 stocks/bonds mix instead of 50/50. This means it has a bit more risk but would still be considered prudent.
An investment nearly 10 years ago would have ended the period with $180,692. Your annual distributions would have increased to $5,204 by 2019. Your worst month would have been the same month as the 50/50 Couch Potato mix. Your original $100,000 investment would have hit its lowest point at the end of September 2011, when it was worth $93,898.
Yes. But small beer compared to, say, death by a slippery virus.